Market Watch

Red and China

Apr 20, 2012

Market Watch with Alan Brugler

April 20, 2012

Red and China

A look at the weekly change table below shows mostly red numbers, net losses for the week. The main black numbers were for soybeans and soybean meal, which both saw a big lift due to buying by the PRC (formerly known as Red China to those of us growing up in the 1960’s). Corn had rumors of Chinese buying, but dropped on a lack of confirmation and a surplus of record crop forecasts for 2012. Hogs also had a Chinese theme, with a Chinese decision to buy and warehouse pork in order to support domestic prices seen as an indication that they would not be importing pork anytime soon.

Corn futures dropped all the way down to $6 on Wednesday before the bulls got a grip on things. They settled at $6.12 ½ on Friday as the battle over the May options strike prices focused on the large OI in the May 610 strike. Rumors of large Chinese purchases circulated all week, but were unconfirmed as of Friday. US export bookings for the previous week were pretty dismal. US planting was 17% done as of last Sunday, well ahead of the average pace. The soy: corn ratio was at 2.52:1 on Friday night, favoring switches to soybeans from corn if producers are not already committed to corn by fertilizer applications or other inputs. Export sales and shipments total 82% of the USDA projection for the year. They would typically be at 84% by now, but the difference is not significant unless it persists another month or two.

Soybeans swam were up 10 cents for the week, after being up 3 cents the previous week. Production estimates for Argentina continue to leak lower, with 42.9 MMT the latest entry from the Ag Minister. USDA was projecting 44 MMT on April 10.USDA reported net old crop and new crop export sales for last week totaled 1,219,300 MT. That was above the high end of trade estimates. Soybean meal exports were up 29% from the four week average at 210,700 MT. Chinese buying was present all week in the complex. They need to buy more than 40 million bushels per week to meet their projected 55 MMT imports for the year. If they are going to 58 MMT as some suggest, even more aggressive buying will be needed.

The three wheat markets were SRW was also the most threatened by the sub-freezing temps that swept across the country, and the weekly crop condition ratings for SRW states dropped 9 points in the brugler500 Index for the week. The Brugler500 index for the entire wheat crop was 363, up 1 point from the prior week. Export sales commitments are at 99% of the USDA sales total for the year, with less than 2 months remaining. They are typically at 102% by now. Weekly export sales were in the middle of the range of trade estimates.

Nearby cotton futures dropped 2.2% for the week, a reversal of the 4% rally seen the week before. USDA for the second week in a row reported net negative export sales, with more contracts cancelled than new ones were sold. The commitments are still 104% of the USDA forecast for the year (typically only 94% by now). If there are enough cancellations, that won’t be true. India released cotton for shipment to meet previous export deals. That fiber had been held up since early March and some of the cancelled US sales may have been because the original Indian cotton was again available.

Commodity

Weekly

Weekly

Month

03/30/12

04/05/12

04/13/12

04/20/12

Change

% Change

May

Corn

$6.44

$6.58

$6.29

$6.13

($0.17)

-2.66%

May

CBOT Wheat

$6.61

$6.39

$6.24

$6.16

($0.08)

-1.24%

May

KCBT Wheat

$6.96

$6.62

$6.43

$6.27

($0.17)

-2.57%

May

MGEX Wheat

$8.34

$8.46

$8.24

$7.91

($0.33)

-4.03%

May

Soybeans

$14.03

$14.34

$14.37

$14.47

$0.10

0.70%

May

Soybean Meal

$388.70

$391.90

$395.80

$406.00

$10.20

2.58%

May

Soybean Oil

$55.10

$56.64

$56.52

$55.83

($0.69)

-1.22%

Apr

Live Cattle

$120.45

$118.33

$120.53

$120.55

$0.02

0.02%

Apr

Feeder Cattle

$148.83

$148.73

$150.53

$150.13

($0.40)

-0.27%

May

Lean Hogs

$91.33

$93.90

$91.13

$87.50

($3.63)

-3.98%

May

Cotton

$93.52

$88.54

$92.08

$90.04

($2.04)

-2.22%

May

Oats

$3.41

$3.37

$3.28

$3.22

($0.05)

-1.68%

May

Rice

$14.77

$15.05

$15.31

$15.51

$0.20

1.27%

Cattle futures added a bare 2 cents per hundred pounds this week after gaining $2.20 per cwt. the week before.Futures had a much more bearish attitude than cash. Cash cattle trade was higher than expected. Wholesale prices rose all week on light to moderate packer offerings. Estimated beef production for the week was down 4.6% from the same week in 2011. Year to date production is down 3.4% despite larger on feed numbers. Weekly export sales for beef slowed to 20,700 MT from 23,500 MT the previous week. They typically do get larger from now until July. The Friday night USDA Cattle on Feed report showed April 1 inventory at 102% of last year, a bullseye for those estimating what it would say. March marketings were larger than expected, which should be supportive for the front end prices.

Lean Hog futures lost 4% for the week as the premium of the May contract to the expired April collapsed. Futures are still at a roughly $5 premium to the CME cash index, but it had been much wider. The pork carcass cutout value was up 63 cents on Friday and up 1.08% for the week. Pork production year to date is up 1% from last year. Production this past week was up 1.7% from the same week in 2011. Carcass weights are estimated at 209 pounds, which would be up 1# from the 2011 actual weight.

Market Watch: The grain trade will begin the week dealing with any fallout from the May options exercises on the 20th, with some folks needing to make surprise adjustments. Cattle and hog producers will be adjusting to the new info from the Cattle on Feed and Cold Storage reports. The Fed FOMC meeting will be Tuesday and Wednesday. USDA reports are of the routine variety, with Export Inspections and Crop Progress on Monday, and Export Sales on Thursday. Traders are expecting record planting progress for corn in the Monday evening report, although it was likely slowed from what it would otherwise have been by heavy rains in the Midwest. Tuesday will mark first notice day for deliveries against the May cotton contract.

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